On March 31, 2020, we sold our entire ownership interest in eLuxury, LLC (“eLuxury”) to eLuxury’s noncontrolling interest holder in consideration of an accelerated settlement of certain financial obligations due and payable by eLuxury to us and the entry into supply and royalty arrangements designed to preserve an additional sales channel for our core products. Also, this sale, which was part of our comprehensive response to the challenging business conditions arising from the COVID-19 global pandemic, is expected to increase our liquidity and allows us to focus on our core businesses of upholstery and mattress fabrics.

In connection with the sale of our entire ownership interest in eLuxury, (i) we received $509,500 at closing as an accelerated repayment of principal amounts previously loaned to eLuxury, together with outstanding interest, under a loan agreement between us and eLuxury; (ii) we forgave $300,000 of borrowings payable by eLuxury to us under this loan agreement; (iii) we entered into an amended and restated credit and security agreement with eLuxury and the buyer (the former noncontrolling interest holder) (together, the “Borrowers”), pursuant to which the Borrowers agreed to repay an additional $1 million previously loaned to eLuxury within thirty days of the closing of the sale transaction (and which amount was secured by the assets of both Borrowers); and (iv) eLuxury agreed to pay $613,000 within sixty days of the sale transaction in satisfaction of certain trade accounts payable due from eLuxury to us.

The remaining $1 million we previously loaned to eLuxury and the outstanding trade accounts payable balance of $613,000 due from eLuxury to us has been paid in full in accordance with the terms of the sale agreement outlined above.

Due to the sale of our entire ownership interest in eLuxury, our home accessories segment was eliminated. This sale (and the resulting elimination of the home accessories segment) was the result of our strategic decision to focus on our core business products, which we believe will increase our liquidity and assist with our comprehensive response to the COVID-19 global pandemic. Consequently, we determined that the results from operations and assets and liabilities associated with our home accessories segment were to be excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements in accordance with ASC Topic 205-20-45. As a result, we classified the results from operations of our home accessories segment separately in captions titled “Discontinued Operations” on our Consolidated Statement of Net Income for the three-months ending August 4, 2019. Additionally, assets and liabilities associated with our home accessories segment as of August 4, 2019, were reclassified from certain amounts reported in the prior period to present separately in captions titled “current assets – discontinued operation”, “noncurrent assets – discontinued operation”, “current liabilities -discontinued operation”, and “noncurrent liabilities – discontinued operation” to conform to current year financial statement presentation.

The following is a summary of the assets and liabilities of the disposal group that are presented separately as a discontinued operation on the Consolidated Balance Sheet as of August 4, 2019.

	August 4,
(dollars in thousands)	2019
ASSETS
current assets:
cash and cash equivalents	$	—
accounts receivable		429
inventories		3,067
other current assets		61
total current assets - discontinued operation		3,557
property, plant, and equipment		1,814
goodwill		13,653
intangible asset		6,549
right of use asset		1,042
total noncurrent assets - discontinued operation		23,058
total assets	$	26,615
LIABILITIES AND NET ASSETS
current liabilities:
accounts payable	$	783
operating lease liability - current		186
accrued expenses		462
total current liabilities - discontinued operation		1,431
loan payable - Culp Inc.		1,800
subordinated loan payable - noncontrolling interest		925
operating lease liability - long-term		874
total noncurrent liabilities - discontinued operation		3,599
total liabilities		5,030
total net assets of discontinued operation	$	21,585

The following is a summary of the major classes of financial statement line items constituting loss before income taxes from discontinued operation that are presented in the Consolidated Statements of Net Income for the three-months ending August 4, 2019:

	August 4,
(dollars in thousands)	2019
net sales	$	4,302
cost of sales		(3,349	)
gross profit		953
selling, general and administrative expenses		(1,562	)
interest expense (1)		(20	)
other income		8
loss before income taxes from discontinued operation		(621	)
income tax benefit		11
net loss from discontinued operation	$	(610	)

The following is a summary of net (loss) income from continuing operations, net loss from discontinued operation, and net (loss) income attributable to Culp Inc. common shareholders and the noncontrolling interest associated with our discontinued operation for the three-months ending August 2, 2020, and August 4, 2019:

	August 2,			August 4,
(dollars in thousands)	2020			2019
net (loss) income from continuing operations	$	(2,733	)	$	1,784
net (loss) income from continuing operations attributable to noncontrolling interest		—			—
net (loss) income from continuing operations attributable to Culp Inc. common shareholders	$	(2,733	)	$	1,784
net loss from discontinued operation	$	-		$	(610	)
net loss from discontinued operation attributable to noncontrolling interest		—			164
net loss from discontinued operation attributable to Culp Inc. common shareholders	$	-		$	(446	)
net loss (income)	$	(2,733	)	$	1,174
net loss from noncontrolling interest associated with a discontinued operation		—			164
net (loss) income attributable to Culp Inc. common shareholders	$	(2,733	)	$	1,338

Our discontinued operation had net cash used in operating activities totaling $1.4 million during the three-months ending August 4, 2019. Our discontinued operation did not have any net cash (used in) or provided by investing activities during the three-months ending August 4, 2019. Our discontinued operation had net cash provided by financing activities, all of which were loan proceeds and capital contributions from Culp, Inc. and the noncontrolling interest holder of eLuxury, totaling $1.4 million during the three-months ending August 4, 2019. We believe our liquidity will improve in the absence of our former home accessories segment due to the significant losses that were incurred by that segment and the funding of its working capital requirements primarily by us through loans and capital contributions that will no longer be required.

Continuing Obligations, Financial Commitments, and Continuing Relationships with the Discontinued Operation

In connection with the sale of our entire ownership interest in eLuxury, we entered into supply and royalty agreements with eLuxury to preserve an additional sales channel for our core products – upholstery and mattress fabrics. The supply agreement requires eLuxury to purchase all its requirements at fair market prices for mattress and upholstery fabrics products of the type we were supplying to eLuxury at the time of the sale transaction, as well as certain home accessories and soft goods products, subject to our ability to provide competitive pricing and delivery terms for such products. The royalty agreement requires eLuxury to pay us a royalty fee based on a percentage of sales, as defined in the royalty agreement, for sales of eLuxury’s products to certain business-to-business customers, including customers which we referred to eLuxury prior to the sale transaction and new customer relationships we develop for eLuxury going forward, as well of eLuxury products generated by sales representatives that we develop or introduce to eLuxury.

There are no guarantees or provisions under either the supply or royalty agreements that require eLuxury to purchase a minimum amount of our products or sell a certain amount of eLuxury products to customer or through sales representatives developed or introduced by us. As a result, the success of these agreements and the period of time in which our involvement with eLuxury is expected to continue are based on eLuxury’s ability to sell products that require mattress and upholstery fabrics and our ability to provide an additional sales channel for eLuxury to grow their business-business sales platform.

As a result of our continuing involvement with eLuxury, we reported net sales and the related cost of sales associated with our inventory shipments to eLuxury in accordance with Topic 205-20-50-4B, which requires us to report these transactions in continuing operations for our Consolidated Statement of Income for the three-months ending August 4, 2019. Therefore, we reported both net sales and cost of sales from continuing operations totaling $174,000 during the three-months ending August 4, 2019, that were previously eliminated in consolidation.

During the three-months ending August 2, 2020, shipments to eLuxury under the supply arrangement totaled $244,000. During the three-months ending August 2, 2020, we received payments pursuant to the royalty agreement totaling $17,000.

Currently, we have an agreement that guarantees 70% of any unpaid lease payments associated with eLuxury’s facility located in Evansville, Indiana. The lease agreement expires in September 2024 and requires monthly payments of $18,865. Under the terms of the sale of our controlling interest in eLuxury, the buyer (the former noncontrolling interest holder) must use commercially reasonable efforts to cause the lessor to release us from this financial guarantee of eLuxury’s lease agreement. Additionally, eLuxury, and its sole owner following the sale transaction, have indemnified us from any liabilities and obligations that we would be required to pay regarding this lease agreement.